Reproduction steps:
1. Open the attached “BugRepro” project

{color:#de350b}Melv: I attached a project that makes testing easier (especially on Neutron) that compares 2D/3D physics, "IN-67633_MelvNoInteraction".  Load it and hit play and it'll automatically move without interaction.{color}

2. Open the “Assets/Scenes/2DScene” Scene
3. Enter The Play Mode
4. Move around using the A and D keys and observe the “2DCharacter” GameObject’s movement

Expected result: The movement is smoothed out by interpolation
Actual result: The movement is jittery

Reproducible with: 2023.1.0a19, 2023.2.9f1, 2023.3.0b6
Not reproducible with: 2021.3.35f1, 2022.3.19f1, 2023.1.0a18

Reproducible on: Windows 11
Not reproducible on: No other environment tested